Consolidation among European banks is inevitable but it is not necessarily the only way for the banking system "to get out of its hole," UBS Group AG CEO Sergio Ermotti said Sept. 4.
Profitability remains weak as low interest rates and the slow economy hit bank balance sheets, he said at the Handelsblatt Banking Summit in Frankfurt. On top of that, regulation has set high standards for capital and liquidity.
In this environment, it is not surprising that European banks lag behind U.S. peers. "I don't think the DNA of U.S. bankers is necessarily different," Ermotti said, but he noted the rate environment is better for them and "they have growth."
Consolidation in Europe is "inevitable" given the current challenges, according to Ermotti. "The only industry that has not seen real consolidation happen across sectors [in Europe in recent years] is banking," he said.
However, mergers and acquisitions are only "one part of the equation," Ermotti said. His own bank has been at the center of a few potential big M&A deals over the past two years, most notably as a candidate for a tie-up with Deutsche Bank AG. Speaking about UBS' future plans, Ermotti said the Swiss group is looking to cooperate with other banks that fit with its business model. It is very important to have clarity about "what you stand for" in terms of strategy to find the right partners, he said.
Commenting on the low-rate environment, Ermotti said that the effects go beyond banking. Monetary policy moves unleash structural and fiscal reforms that have long-term consequences. Although people have to accept that economic slowdown or even a recession are normal, it is not normal that the issue does not appear in political agendas, Ermotti said.
